Veda Investment Managers Pvt. Ltd. Portfolio Management Services 1 - - PowerPoint PPT Presentation

Veda Investment Managers Pvt. Ltd.

Portfolio Management Services

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Investment Philosophy – the 3 “U”s Investment Philosophy – the 3 “U”s

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#1: What are we looking for?

We seek large discrepancies in risk:reward

Stocks trade like a bell curve with a large number of stocks trading at near fair risk:reward We focus on stocks at the extreme where returns can be disproportionately high for the risk we take. risk we take.

The 3 “U”s approach

1. Undervalued: risk-reward trade off should provide margin of safety 2. Under-owned: we prefer stocks that have low FII, institutional investor interest 3. Undiscovered: low research on the stock

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We are looking for stocks with asymmetrical risk reward

#2: Research, research and more research drives our investment philosophy

Detailed research wins over gut feels and market sentiment Process driven research to eliminate market noise – blend of science and art

Largely scientific process. This involves, screening to identify ideas and then detailed modelling to arrive at fair valuations. Bit of art involved

• We look at market sentiment and psychology
• We try to stay away from the herd.

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“Buy not on optimism, but on arithmetic.” —Benjamin Graham.

#3: What stocks do we focus on?

We focus on stocks at earnings “inflection point”

We are looking at high operating and/or financial leverage. We buy stocks early before they are flavor of the market

Stocks we like have following characteristics Stocks we like have following characteristics

Large size of market and attractive industry dynamics Competitive advantage of the company vs competition Strong Corporate governance

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"Even the intelligent investor is likely to need considerable willpower to keep from following the crowd." — Benjamin Graham

#4: Buy and hold for wealth creation

We believe in buying under-valued stocks and holding them for long term Churn in portfolio is low Buy early and sit on stocks like partly like a Private Equity investor

We buy unloved companies that are either out of favor or are undiscovered and unresearched. We are willing to do deep research on the industry dynamics and company positioning. We are willing to do deep research on the industry dynamics and company positioning. We are passionate about being “dispassionate” in our analysis.

When do we sell stocks?

When the stocks has rallied & is no longer cheap

Will I buy the stock at current market price?

When the reason for buying the stocks has not materialised

e.g. now competition come in or size of market changes.

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“The big money is not in the buying and the selling, but in the waiting” — Charlie Munger.

#5: Concentrated Portfolio

I) Concentrated Portfolio

1. Our portfolio will be fairly concentrated with 12-20 stocks. 2. However, we will not initiate any stock with a more than 15% position when we buy the stock.

II) Low Churn, long term holding

1. We intend to buy and hold stocks until we think the risk:reward no longer looks favorable 2. Our intention is to buy mid-cap stocks with low institutional interest, watch it grow in market cap and sell once it comes on the radar of institutional investors and sell once it comes on the radar of institutional investors

III) Liquidity would be balanced with opportunities in PIPES

1. We would be willing to invest a portion of the portfolio in relatively illiquid stocks including PIPES (Private Investment in Public Equity) if we believe the risk: reward is compelling.

IV) Market cap Agnostic

1. but above philosophy means significant part of portfolio in mid and small cap

V) We will not be hugging the benchmark indices

1. Most of the portfolio could be out of benchmark bets. 2. At the same time we are aware of the benchmark returns and our endeavour would be to beat that.

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Investment Process Investment Process

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Investment Process

• companies

Macro Approach

through Global Indicators & Markets Macro Economic Analysis Industry Analysis

Bottom Up Quantitative Approach

screening for Reasonable valuation History of earnings growth and return ratios Debt gearing & Free cash flows

Due Diligence Research & Modeling The 3 "U"s

Stock Ideas Portfolio Construction

• companies
• companies

Due Diligence

Company management meetings Meetings with competitors, suppliers, distributors Porter analysis

Research & Modeling

Detailed financial model Analysis of management's track record

The 3 "U"s

Valuation: PE, PB, DCF, RoE, Free Cash flow Ownership: FII holding, MF holding Analyst Coverage

Constant Monitoring

monitoring growth parameters including volumes & price valuation monitoring to ensure risk-return trade-off

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Investment Process: Macro to Micro (MTM)

Macro is an important tool to throw up stock ideas

• We pay attention to global as well as domestic macro-economy and industry trends. We think this is

important in stock picking as (a) it throws up themes that we will drill further in finding stock ideas and (b) it is important when we build our earnings model to help us assess if analyst estimates will be beaten or missed.

Screen based approach to throw up stock ideas

• We are constantly running proprietary screens to throw up mispriced opportunities.
• These include valuation screens, trends in RoE/RoCE , free cash flow, gearing levels etc.

In-depth Research & Modelling

• We pay strong emphasis to the management team.
• Porter analysis to assess the sustainable advantage of the company.
• This is combined with the assessment of the future earnings and cash flows of the company, its

balance sheet strength as well as valuation parameters like price/earnings ratio, price to book value, EV/EBIDTA etc to decide on the return potential of the stock.

• We also pay attention to ownership factors – how much research coverage, institutional holding etc.

We try to avoid crowded trades.

Portfolio

• We invest in companies where there is a significant upside potential with a margin of safety.

Monitoring

• We constantly monitor our portfolio to ensure (a) earnings expectations are on track (b) after share

price performance the risk: reward is still favorable.

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About US About US

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Why Choose Veda?

• Client centric approach

Easy access to founders, fund manager and analyst team

• Our skin is in the game

The founders would invest in the same fund with you.

• Our interests are aligned with yours
• Our interests are aligned with yours

Performance fees incentivizes superior performance

• Flexible solutions

We are happy to work with you to find customized solutions to your investment needs.

• Strong pedigree and financial market experience

The founder has over 30 years experience in the financial industry and has successfully carved a niche for research based, non-consensus views.

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The Man Behind PMS

Jyoti has an overall 30 years of experience in the Indian Capital Market including 21 years in DSP Merrill Lynch and 8 years in ICICI. He was Head of Research and strategist for India at Bank of America Merrill Lynch. He helped build the research team as the leading research provider in India as well as one of the top institutional brokers in the country.

• Mr. Jyotivardhan Jaipuria

Founder & Managing Director

As a strategist, he was rated amongst the top strategists in India by leading institutional investors in India. Jyoti has also served as a member of the Board of Directors

• f DSP Merrill Lynch, the Asia Pacific Research Executive

Committee and Operating Committee, the India Country Leadership Team (CLT) and other management committees. Jyoti graduated in Commerce (B.Com) from Sydenham College and has an MBA from the Indian Institute of Management, Ahmedabad.

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Key Management Team

Daljeet has an overall 20 years of experience in the Indian Capital Market including 7 years in IndiaNivesh Securities and more than 2 years in Emkay Global Financial Services Ltd. He was Director and Head of Research at IndiaNivesh Securities Ltd. His experience spans across understanding of macro-economic factors and many specific sectors such as chemicals, pharmaceuticals, auto ancillaries, retail, etc. Daljeet's strengths lie in his ability to relate global macro- economic situations, political and social factors to their micro impact at industrial sector or company level. Prior to IndiaNivesh he has been HOR at Emkay Global & IORAM, an Australian company in its Global equity research hub in India. He has also led the Equity research teams in

• ther eminent financial services houses of India.

Daljeet graduated in B.Sc. from Bareilly College and has an MBA from the Institute

• f

Management Technology, Ghaziabad.

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• Mr. Daljeet Singh Kohli

Fund Manager

Key Management Team

Kalpesh Gothi, Investment Analyst

Kalpesh has over 9 years of experience in research across various sectors. Prior to joining Veda Investment Managers, he has worked with Wallfort Financial Services Ltd., an institutional broking firm, as equity research analyst. He was tracking different sectors like Construction, Textiles, Plastics, Consumer Durables, and was responsible for generating as well as tracking small and mid cap ideas.

Educational Credentials

• Certified Financial Analyst (ICFAI)
• Advanced Diploma in Taxation, University of Mumbai

Unmesh Pawar, Manager – Operation

Unmesh has over 11 years of experience in PMS operation. Prior to joining Veda Investment Managers, he worked with Ambit Capital Pvt Ltd and has handled their operations in the wealth as well as PMS divisions.

Educational Credentials

• B.com from Mumbai University

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Veda Rising Stars Opportunity Fund:

Investment Objectives: The 3 Us

The objective of the scheme is capital appreciation in the medium term to long term by investing in cherry picked stocks mostly in the Mid and Small cap space. The portfolio focuses primarily on a buy and hold strategy at most times. We will focus on the 3 Us (Under-owned, under-valued and undiscovered stocks).

Midcaps are under-owned by FIIs...

Market Cap

• No. of Stocks

FII holding % >50000 cr. 37 20.92 30000 - 50000 cr. 27 16.38 10000 - 30000 cr. 92 11.49 5000 - 10000 cr. 85 13.40 1000 - 5000 cr. 327 6.94 500 - 1000 cr. 214 2.45

Investor Profile:

Ideal for investors with a 3 year or longer investment horizon.

Midcaps are under-owned by FIIs...

Veda Focus stocks

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Portfolio Performance

46.3% 41.8% 66.5% 47.3% 18.2% 22.6% 51.3% 28.6% 20.4% 22.2% 20% 30% 40% 50% 60% 70% 17 18.2% 7.6% 10.6% 20.4% 0% 10% 20% 3M 6M 1Y Since Inception (September 29, 2016) Veda Rising Stars Opportunity Nifty MidCap 50 Index Nifty 50 Index

• Return of Model portfolio shown above is after deducting performance and management fees.
• Portfolio inception date is September 29, 2016.
• Returns of individual clients may differ depending on time of entry in the Strategy.
• Returns above 1 year are CAGR

Stock Picking Case Studies Stock Picking Case Studies

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Skipper Ltd. (CMP - Rs.266)

Skipper Ltd is India’s second largest transmission tower manufacturing company & tenth largest in the world, having production capacity of 200,000 MTPA (current 230,000). Skipper enjoys better than industry margin profile and one of the best return ratios in the industry. This is led its integrated manufacturing strategy. Expansion in manufacturing capacities, large order

Investment Rationale Investment Price: Rs.150

120 140 160 180 200 Skipper Nifty Midcap 50 Nifty 50

Expansion in manufacturing capacities, large order book and unutilized capacity in PVC pipes provide visibility of a 20-25% CAGR EPS growth. Valuations were at a 40% discount to peers which, given better return profile, was unjustified.

19 (Rs. Cr.) Sales EBIDTA Net Profit EPS EPS growth RoE FY15 1313 225 89 8.71 231.4% 29.4% FY16 1464 173 95 9.30 6.7% 17.6% FY17 1685 215 111 10.90 17.2% 19.9% Market Cap (Rs. Cr.) 2723 Promoter Holding % 70.35% Institutional Holding % 13.88% Free Float (Rs. Cr.) 807

80 100 Sep/16 Oct/16 Nov/16 Dec/16 Jan/17 Mar/17 Apr/17 May/17 Jun/17 Jul/17 Aug/17 Sep/17 Oct/17 Nov/17 Dec/17 Jan/18

Yuken India Ltd. (CMP – Rs.3680)

Yuken is 40% owned by Yuken Kogyo, Japan, a global leader in hydraulics. This provides them a technological edge in the hydraulics market. Given the current slow-down in the economy, the industry is at a low phase in the cycle. As the economy recovers, we could see a sharp jump in sales and EBIDTA as operating leverage plays out. Earnings could more than double out once we see an improvement in the investment cycle.

Investment Rationale Investment Price: Rs.353

480 680 880 1080 Yuken Nifty Midcap 50 Nifty 50

in the investment cycle. The company has entered into an JDA with Brigade Enterprises to develop its property in Whitefield Bangalore of 6 acres once it moves out of its present

• premises. We think this can fetch the company

around Rs.175cr over next 3-4 years. At the time of purchase the EV of company was less than that.

20 (Rs. Cr.) Sales EBIDTA Net Profit EPS EPS growth RoE FY15 186.3 8.1 0.2 0.6

• 80%

0.30% FY16 199.0 8.1

• 2.0
• 6.7

N.A N.A FY17 209.9 4.8

• 5.0
• 16.7

N.A N.A Market Cap (Rs. Cr.) 1104 Promoter Holding % 52.50% Institutional Holding % 1.72% Free Float (Rs. Cr.) 524

80 280 Nov/16 Dec/16 Jan/17 Feb/17 Mar/17 Apr/17 May/17 Jun/17 Jul/17 Aug/17 Sep/17 Oct/17 Nov/17 Dec/17

Rain Industries Ltd. (CMP – Rs.433)

Rain Ind is one of the largest carbon product suppliers to the aluminum industry, with a global capacity of 3.5mt. Its carbon segment includes a 2.1mt CPC capacity and a 1.4mt coal tar distillation capacity, and contributes 80% to consolidated EBITDA. Rain’s consolidation and restructuring efforts (over CY13-15) and improvement in demand for its Carbon

Investment Rationale Investment Price: Rs.85

280 380 480 580 Rain Ind Nifty Midcap 50 Nifty 50

CY13-15) and improvement in demand for its Carbon Product segment has resulted in strong operating and financial performance in the last four quarters. We believe rising demand for CPC and CTP are likely to drive strong improvement in profitability and improve the credit profile of Rain.

21 (Rs. Cr.) Sales EBIDTA Net Profit EPS EPS growth RoE CY14 11937 1205 89 2.63

• 77.0%

16.4% CY15 10219 1349 323 9.61 265.2% 11.1% CY16 9316 1354 225 6.68

• 30.5%

10.1% Market Cap (Rs. Cr.) 14531 Promoter Holding % 41.10% Institutional Holding % 20.47% Free Float (Rs. Cr.) 7900

80 180 Feb/17 Mar/17 Apr/17 May/17 Jun/17 Jul/17 Aug/17 Sep/17 Oct/17 Nov/17 Dec/17

Fee Structure

Fund Type SEBI Registered PMS Fund Tenure Open Ended Structure Discretionary PMS Fees

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Fixed Management Fee: 1.5% p.a. charged Quarterly basis Performance Fee: 15% of return Above 10% Hurdle Rate charged annually (subject to High Water Mark level) Exit Load 3% - before 12 Months 2% - between 12 to 24 months 1% - between 24 to 36 months

Disclaimer

• Veda Investment Managers Pvt Ltd (Veda) is a registered Portfolio Manager with Securities and Exchange Board of

India.

• This presentation is strictly for information and illustrative purposes only and should not be considered to be an
• ffer, or solicitation of an offer, to buy or sell any securities or to enter into any Portfolio Management agreement.
• This presentation is not intended for distribution to public and is not to be disseminated or circulated to any other

party. party.

• Veda does not offer any guaranteed returns nor is there any capital guarantee in the Veda PMS. Veda Investment

shall not be liable for any losses that the client may suffer on account of any investment or disinvestment decision in the Veda PMS or based on the information or recommendation received from Veda Investment on any product.

• Investments in the Veda PMS, as in any other equity product, may go up or down due to various factors affecting

the market. There are market risks, political risks, financial risks etc in equity investments. Investors should take into consideration all their risk factors and their risk profile before investing. Clients should also take professional legal and tax advice before making any decision of investing.

• Our past track record is no guarantee of our future performance

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Thank You.

Contact us: Veda Investment Managers Pvt. Ltd.

1313 Dalamal Tower, Nariman Point,

Thank You.

Nariman Point, Mumbai-400 021 T: +91 22 67470251 Email: pms@vedainvestment.com www.vedainvestment.com

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